Stock-analyst SP Tulsian of sptulsian.com explains to CNBC-TV18 that the market expects little from the Winter Session on Parliament and advises investors to be participate in the Tara Jewels IPO.
Below is an edited transcript of the analysis on CNBC-TV18.
Q: What is your take on Excel Crop Care posting a big move and the news regarding the phasing-out of endosulfan?
A: The news is positive for Excel Crop because the company has been suggested to phase out endosulfan in the next two years. Globally, the phasing out of endosulfan has been allowed for five years and a similar deadline was expected to be recommender to India. But even this recommendation of two years seems to be a bode well for Excel Corp Care.
The stock has posted a run up and in the last few months it has moved up by about 80 percent and I don’t think that the price of Rs 235 is justified. Investor-exuberance due to any kind of news may push the stock to Rs 240-245, but I caution against any fresh entry or fresh buying at the current level. Those holding the share can contemplate if initiating the profit-booking at the level of Rs 240. But yes, this is definitely positive news for the industry.
Q: What is the retail and traders' attitude towards midcaps? The midcap segment significantly outperformed the frontliners last week and this week, for the last two days they have underperformed. Is this volatility the effect of cash calls or is it because of a lot of activity in the futures and options segment?
A: Generally, whenever there is a run-up of 40-50 percent, retail investors rush into the market. By and large, the buying has been in the cash segments as many stocks do not have any presence in the F&O segment, barring a few. In fact retail investors have been losing large amounts of money having entered the stock at its high which after a certain level begins to witness profit-booking.
Q: What is your opinion on jewellery stocks?
A: There is an element of market speculation in these stocks such as the run-up in Shree Ganesh Jewellery House which quickly corrected.
I advise caution on two stocks- Tribhovandas Bhimji Zaveri (TBZ) and Goenka Diamond and Jewels. I am not convinced with the valuations and when TBZ was listed, there were no buyers. The stock could have moved up due to under-ownership. The fundamentals do not justify the valuations for Goenka Diamond as well.
But there are a few strong stocks too such as Gitanjali Gems which has good brands, turnover, topline and an EPS of close to about Rs 30 for FY13 and the share has been ruling at a PE multiple of about 9-10 on the forward earnings and by historical earnings, it is ruling at 12-13.
I also advise caution on comparing jewellery stocks to Titan as there is no of comparison. Over the last five years, Titan has enjoyed a multiple of 20 percent which is difficult to even imagine in most stocks.
Q: What have you made of Sintex's issue of new FCCBs worth USD 140 million and the QIP? What kind of dilution would it entail and where do you see the stock settling?
A: I think the market has taken it too negatively. The preferential allotment, which has already been made at Rs 68-69, is not a huge negative. If the company has to meet the FCCB liability of about USD 250 million, which is due in the middle of March 2013, obviously, some preparations have to be made. Only part of that only has been substituted by fresh FCCB and balance has come in from the preferential allotment which is already over.
The company has a cash accrual of about Rs 400 crore on an annualised-basis which could act as a cushion apart from the cash balance of Rs 500-600 crore. I am unable to understand the reason for issuing FCCBs worth USD 150 million. The company could have issued FCCBs of smaller amounts of about USD 85 million to meet the FCCB liability of USD 250 million and that probably has made the market anxious.
But I am positive on the stock because once the company has been able to repay its entire FCCB liability the stock could move up by 25 percent in a month. So, those who have a longer term horizon of 4-to-6 months can enter the stock. I won’t be surprised to see the stock touch Rs 90-100. But yes, for the traders the stock seems to have bottomed out. It will be very difficult to say when stock will move up, but I don’t think that stock can really fall below Rs 56-57.
Q: What is your expectation from the upcoming Winter Session of Parliament and from the market’s perspective is there any bill that will move the market too much if it doesn’t come through?
A: I only hope that the FDI Bill is passed. However, if that Bill is not passed it could probably be quite positive for all retail stocks because many have already corrected. I do not think that any kind of positive development can be expected from the Winter Session. Unfortunately, the session starts exactly a week before the expiry of the November series on November 29. So that one week will spoil the mood and profit booking may start continuing in the last one week of the November series. Overall, I maintain a cautious-to-negative stance on the market.
Q: What is your view on Reliance Communication?
A: I don’t think there anything negative in the stock on a fundamental call and there are no expectations of the stock to fall much from the current level. But the recent positive news in the telecom sector caused a small bump in the stock which is not sustainable. So it is a very unfortunate stock for the traders as well as for the investors.
I don't think that one can really take a short or long call because whenever the traders try to take a long call on the stock for last couple of days and the stock has corrected by 4-4.5 percent in a day. So, obviously things are not very good for the company. I will maintain my cautious stance on the stock, but not with a negative bias.
Q: What do you make of the news of a private equity player expressing interest to buy about 9-10 percent stake in KFA? Will the sale of stake in KFA actually happen now?
A: The sale of stake is certainly on the cards but I don’t think that any investor will really come into the company which has a bank debt of about Rs 7,500 crore and supplier- employee liability of about Rs 7,000 crore- a total liability of Rs 14,000 crore. The UB Group has to form a definitive plan to bring down the level of debt. Only when that is done will a PE or strategic investor express interest in the company.
Q: On Wednesday, Tara Jewels is launching its IPO. What is your advice to investors?
A: I like the issue because of the company’s financial performance – a FY12 top-line of Rs 1,400 crore with a PAT margin of about 4 percent and a PAT at Rs 55 crore. This translates into an EPS of about Rs 30 on an equity base of Rs 18 crore. The company currently has 30 outlets and plan to increase this number to 50. Around 20 outlets will open across 18 cities by March 2013.
What disturbs me about the company is that it has an export turnover of less than Rs 1,200 crore against which there is a five-month inventory. The receivables of about Rs 400 crore for five months is also putting pressure on working capital.
Once the funds come in, the company will be able to improve performance going forward and I won’t be surprised to see an EPS of Rs 36-38 for FY14. The stock looks reasonably priced, the IPO should see good response and I recommend investors to buy the IPO.
Q: Would you recommend a contra buy in any of the realty stocks that are looking fairly weak for the last few days?
Q: What is your call on Sun TV now that it is up 2.5 percent?
A: Traders can look for some profit-booking in the stock but I am positive from amn investment point of view. Maybe one can look to book profits at about Rs 380 and re-enter at Rs 350-355. If you take the trading pattern in the stock over the last four-five months, there has been a broad range of Rs 325 to Rs 385 and now since it is at the upper end of that range, profit could be booked at Rs 380-385.